AutoNation CEO Warns of Sales Plateau

DETROIT –Cyclical by nature, auto sales are transitioning to a plateau stage, and it would behoove the industry to manage it well this time around.

So says CEO Mike Jackson of AutoNation, the country’s largest dealership chain, describing recurring periods of growth, plateau and decline as inevitable elements of the business.  

“The auto industry is good at managing growth and pretty good at managing decline, but the period in which they are clueless is plateau,” he says here at the Automotive News World Congress. It is held in conjunction with the North American International Auto Show.

On the surface, auto sales appear robust. The industry is coming off 2015 with record sales of 17.4 million units. Forecasters think 2016 deliveries will top that. The mood of the Motor City’s auto show is upbeat.

But Jackson cites warning signs, including relatively so-so sales closing out 2015, price discounting and, “most importantly,” growing inventories.

AutoNation’s is up 20% compared with a year ago, he says. “Our premium-luxury inventory is up 50%. That’s significant.”

Of higher incentives, deeper discounts and the like, “the retail market is telling us something,” he says.

Managing previous sales plateaus was more perilous for the auto industry than managing growth and decline, Jackson contends. Part of the historical problem: “Every individual company makes a case as to why they are going to grow and everyone else will be flat.”

He hopes today’s automotive brass “will show sophistication and leadership to handle a plateau, using as a benchmark the previous times the industry hit one and mismanaged it.

“Let’s do it right this time.”

Jackson formerly headed the U.S. unit of Mercedes-Benz. He is known throughout the industry for his outspokenness. AutoNation, which has struggled on the stock market lately, has begun reacting to a softening marketplace, he says. “I’m buying less inventory.”

When dealers curtail lot inventory in response to reduced demand, automakers typically react by laying on more stair-step dealer incentives in the form of money for hitting increasing sales goals. But that lures retailers to offer deep discounts to customers and conditions customers to expect them, Jackson says. He calls stair-step incentives “diabolical.”

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